tv Options Action CNBC February 24, 2013 6:00am-6:30am EST
it, so what do they do? they try to fill up that emptiness by spending, spending, spending. we saw that happen tonight with our interview, my "1 on one" with christopher and his 62-year-old mother, anne, who is just kind of stoic at the beginning of the interview, she was holding her own, and then i noticed that there was a little tear coming down her cheek and then another one, and then i asked her why. and she talked about how hard it was that after 30 some odd years of marriage that you really are trying to make it work and it doesn't work, what do you do? so here is my final suggestion. if you see your parents acting in an irresponsible, financial way, rather than going to them and you becoming the parent and going, stop doing that, don't do that, it's ridiculous, don't ask them the question, why are they wasting money, ask them
questions such as, mom, is something bothering you? are you afraid of something? dad, are you hurt inside? are you crying? what's wrong, dad? can you tell me what's going on in your life? have a conversation about who they are and what they're going through as a human being as your parent, and maybe that will unlock the mystery as to why they are acting so irresponsible when it comes to money. now you know. but until next week there's only one thing that i really want you to remember when it comes to your money and it is this, people first, then money, then things, now you stay safe. bye-bye.
this is options action. tonight, take a bite apple shares have been rotten but could a major shareholders meeting get them cooking again we will debate it and show you how you can make money too. talk about an oscar worthy trade. >> i'm the king of the world. >> cohen carter teaming up for a trade on time warner that could make you five times your money in two months. it's a blockbuster trade you won't want to miss. why are all those option traders pigging out on wendy's calls. a super size explanation. the action begins right now. live at the nasdaq in new york city's times square, i'm melissa lee. these are the traders. stocks break their losing streak. the dow closing with over 100-point gain breaking its two-day losing streak. is this healthy price action or is there something amiss in the markets? let's find out right now. it was a tough week for home builders, retailers and autos. they are surfacing about the
strength of the consumer. >> we saw disappointing results out of home builders, like toll brothers earlier in the week. we saw them with retailers. the automakers had a tough week. the fed has been doing what they have been doing. we got the minutes from the last meeting. a little more dissent than some people had expected. at some point, they are going to take their pedal off the metal. if you continue to have the head winds that we do right now, we are facing a sequester, we have $4 gas at the pump, payroll tax increase. some guys told us this is hurting their sales. at some point, something has to give. i'm not sure at five-year highs if we can continue to go up. >> the home builders were due for a sharp pullback. they had gotten so far ahead of themselves, trading at valuations that go back to the last real estate bubble even though we are try tog create a new one. >> aren't these better companies than 2008, 2007? >> i definitely think they are.
these are companies, i mean, take a look at toll brothers as an example, one of the things they did was bought two pieces of property in manhattan where real estate is doing exceptionally well. i wouldn't say they haven't built themselves into better companies. they have. does that justify high multiples? i don't think so. one other thing that was a positive about the market was the fact we saw some negativity in the markets. in gold, it increased. those type of things, they reflect some skepticism. the market needs skepticism. from this skeptic, that is a positive. >> i'm going to play the optimist on the desk. wasn't this a solid, broad add vansz -- we have had new highs on the transports, midcaps, small capps. it is a broad-based rally. >> we really had trouble earlier in the week. we had a nice comeback on friday. part of the problem is that when the market starts getting volatile, it tends to stay volatile.
that does not end well. another sector that had problems this week are the banks. bank of america, when the broad market was up, bank of america was up all of 2 cents, all of 6.5% from its february high. to the degree traders have been riding these banks like trigger, the fact they have come back is a problem. >> the banks gave a little up. they were clear leaders as were the home builders. a sector that did not participate was technology. that was the sector that got us here for a good part of 2011 outperforming in europe and 2012. we didn't get it. i'm negative here. i think we are in the process of making a top. this is going to take a while. i don't think you pick a top and pick a point in time. we are going to have to see some of this other stuff confirm. technology cannot get going. if toll brothers and xhb, if they are telling us something, where the new leadership is going to come from, this is why we could be in for some more
down side. >> are we reading too much into a couple of data points from walmart or nordstrom or abercrombie & fitch in that we only have a couple of months in terms of the payroll tax increase. we are beginning to see as walmart pointed out the increase of tax refund checks. as they continue to roll into consumers hands through april, we could see a pick up? it could be an offsetting factor. >> walmart numbers ended up being not too bad. i am not sure how much you can put into walmart. i don't think the quality is going to be really high. that sector of the market has been in trouble for a while. we've been looking at the other parts of the market, the coors and ralph lauren and the companies that are doing better, generally appeal to the higher
end of the market. the walmart and dollar stores are in trouble. >> you are taking a look specifically at the home building sector. >> yes. the etf that covers all the home builders, all the big ones. a lot of building suppliers. >> home depot, sherwin-williams, tempurpedic. >> not just a play on the home builders. what caught my eye was the move on toll brothers. it was trading in 2005 when they earned $4 a share. they are expected to earn $1 a share. this is where valuation is going to become very important. we also have a chart here. people are talking about this massive housing recovery, when you look at the 25-year chart of housing starts. look at that chart right there. recovery, maybe? >> who thinks we are going to get back up to that peak we saw during the boom? you are assuming that's the point of recovery. >> that's a great point. what i'm saying is valuation has to matter. toll brothers is trading at levels where they earn $4 a share in '05.
they are earning $1 a share this year. it's discounting a lot of good news. >> dan is bearish. he's buying a put spread. this is a great beginning strategy. it is a bear strategy. i buy one and sell one put. you want the stock to fall to the strike of the short put. that's where you make the most money and where your profits are capped. dan, walk us through. >> i want to pick on a sector i think is going to continue to be weak and had a tough weak. i want to look out a couple months. i looked athe xhb. i bought the april 2725 put shread for 45 cents. i bought one of the april 27 puts for 70 cents. i sold an april 25 put against it for 25 cents. my max risk is 45 cents. i can make up to $1.55 between 26.55 and 25. below that, that's my max payout. i can only lose that 45 cents.
this is a designed risk that implied volatility is relatively cheap in the name. despite the movement, i'm selling that lower strike put. i don't think we are going to get an apocalyptic move. >> are the options cheaper? >> yes. >> that's one reason you are doing this. >> that's a really good point. we have seen more dispersion in the markets. stocks have been going in different directions. what ends up to etfs is that mutes how much they move around. when fear enters, they start to track together. the volatility of an etf or an index will increase. that's what happens when they start to decline. it is absolutely the case that right now, we're looking at a situation where we haven't seen indices. >> we are on the cusp, of -- >> you are making a play obviously on a decrease. you are also making a play on the fact that increasing fear is going to start pushing all assets in one direction. >> let's wrap this up. stocks versus options.
better have a lot of money in the bank. etfs like stocks can go up forever. if you are short, unlimited losses. dan's put spread offers a 4-is payout and defines his risk to $45. not bad there. get your ballots ready, the 85th academy awards will air this sunday. while the glitz and glamour and perhaps ben affleck will take center stage, some big media companies stand to make big money off the event. julia, who stands to win? >> this may look like fun and games but this is big business. the winner on best picture has on average a higher box office of $14 million and high home entertainment revenue. that should be a big winner for time warner. argo is expected to take on the top picture. the other big winner is disney. not only is it sure to bring home serious statuettes for
lincoln including best director for steven spielberg. disney owns abc and this year is expected to bring home more than $85 million in ad vertizing revenue. watch to see which studios are behind the films that bring home the most oscars. the key thing to keep in mind, the smaller a film's box office, the bigger the impact those awards have on the bottom line. >> before we let you go, any picks going into the oscars? best picture, best actress? >> i think best picture is going to go to ""argo"." i think best director is going to go to spielberg. if ""argo"" wins best picture in the fact that it wasn't even nominated for best director, that will be a really interesting situation. best actor i think has got to be daniel day lewis. i think the best actress could
go to jessica chastain, jennifer lawrence or the actress that starred in amore, which not many have seen. >> it is going to be one to watch on sunday. the media stocks, the only thing hotter than ben affleck. our next guest says they have come too far, too fast. our next guest being the man who some believe is actually ben affleck's muse. carter, what do you see? >> sure. time relevant here. time warner, is it priced in the good news so to speak. here is a two-year chart. a beautiful trend. the issue, this move over the june low, the stock is up you are talking 60%. a little bit above trend. i want to show you this current six-month move in the con text of the long-term chart. we broke out from this well-defined wedge that's the move. the 60% advance from the wedge. at this point, i think it is overdone. take a look at this same five-year chart of time warner versus the s&p. a top 50 stock in the s&p, breaking away. it is pricing in almost
everything if you will. look at the ten-year chart, again, top 50 stock in the s&p. very correlated to the market. overshooting. this is a pretty good time to harvest gains, take your profits and sell short. >> harvest gains and take profits. mike, where do you stand on time warner? >> it is interesting. it isn't a hugely rich stock. it is trading a little over 17 times earnings, a turn higher than it usually does. there is is issue they have authorized a $4 billion shares purchase. that gets you right back to the mean valuation or a little bit lower. they have seen some decent top line and eps growth. their margins have broadened. maybe it's a risk factor. it comes in 200 basis points. those are the types of risks. i think what scarce me are the charts more than the fundamentals on this one. >> what the trade on this, mike? >> i'm going for a simple put spread here like dan. the april 50, 48 put spread. i'm going to spend 80 cents for
the 50 puts and sell the others. that's a net debit of 35 cents trying to risk a little bit of money to make my bearish bet. this is a way to put a little bit of money to work with a little bit of leverage. if they do take home the oscar, that's not going to bode well. >> this also income passes the next releases. i think really what we're dealing with is, is the market stretched? is this stock stretched? >> i don't know how you don't look at the charts and if you own the charts, i don't know how you are not terrified by these charts. you have to do something. >> you are all bears. i feel like oh, what do you think? i don't like this because i'm negative. >> it's a big-time warner thing. >> that's all you have to say. >> the only thing i will say is i didn't see carter show the bubble highs. men they merged with aol, it is
breaking out the ten-year highs. to carter's point, if you can get this stock back to the recent breakout level, those are probably good levels to buy at. >> a lot of these media stocks are at or near all-time highs. do you feel the same about all these other trajectories that we have seen? >> most stocks are starting to roll over badly like limited, walmart, pet stores, casual diners all rolling over. the sector is being pulled up by these big medias like disney, comcast, news core. they are skewing what's going on under the hood. if you think about it, the problem is people are nervous whether it's the tax increase. they are selling stocks that are consumer discretion related and they are having to be in the sector. so you are crowding into the safety names like time warner. that never ends well. >> okay. you see the chart there. good point there, carter. last time here on stocks versus options, the financial equivalent of ishtar.
mike's point, $35 and a 5-1 payout. we will see carter later on in the show. got a question, send us a tweet. scott will answer it. it's right after the show on our website. tonight he has a trade on goldman sachs. you can make money whether they go up, down or nowhere at all. options email@example.com. here is what's coming up next. are apple shares about to start cooking? the stock has been in' free-fall. with einhorn pushes for stocks could it be time to take a bite. dan a no hold bar that could make you money. that's when option actions return. >> time for pump up the volume. the names heating up the trader sizzle. would you like fries with that? this company is one of the largest fast food chains in the country. the stock is juicy after revamping their menu and reporting higher than expected stocks.
they are craving the company's call to indulge in mouth watering earnings next week. who is it? the answer when options action returns. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
[ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. where are traders pumping up the volume this week? wendy's. call volume was up almost ten times the average daily volume.
ali, frazier, yankees, red sox, lindsay lohan and sobriety. these battles pale in comparison to the blood fest that is called put up or shut up where dan and mike duke it out over the stock. the winner gets to give the trade. tonight, the debate is on apple. the battered tech giant will hold a share hold ter meeting next week. david einhorn is clamoring for the company's cash. a federal judge ruled for einhorn in a dispute that could make it easier for shareholders to vote in the coming proxy. has apple found a floor here? mike, why don't you kick it off. >> sure thing. one of the thing that has happened to apple, this thing has been pummeled from an evaluation standpoint. let's take a look at some of the businesses. $32.5 billion in revenues in ipad, generated about $10 a share times 15, $150 in share value. they did about $23.5 billion in max sales. so that's about another $2 to the bottom line, another $30 a
share. you've got itunes, $8.5 billion. another $2 a share, times 15, $30 a share. $140 billion in cash. obviously, someone is short. knock it down for tax. that's $110 a share right there. you add it all up, what do you get? the iphone business is basically valued at $130 a share. $80 billion in revenues. that's about four times earnings. margin compression, decreases in sales, all baked into the cake i think we are getting to a local bottom. >> here is a business that's running very well. all of a sudden they are facing a massive deceleration. analysts expect the company to grow at 1, 2, 3% a year. next year, 10%, 11%, 12%. it could be lower. you've said it yourself, mike. what's going on with the stock here is that the shareholder base is turning over. it's taking longer than people
want to happen here. i am not bearish on the apple story, so to speak. the days of seeing a 600 print in the stock are a long ways off. there's a lot of thing that is have to go right for this to happen. when i'm looking at this event, a lot of people see the stock at 450. if it rallies a couple percent, i think all the einhorn stuff -- i think investors are going to be disappointed. >> i am not calling for the stock to go to 600. at some level, people are going to look at the evaluations and say enough is enough. this is the level i'm comfortable with. >> i would love to own apple and be short in the market. here is my setup. i think einhorn's antics have created unrealistic expectations for what happens. if the company mildly raises the dividend, i think the stock sells off. >> the double bell ringing. you don't want to get to a third bell, guys. >> all right, fair enough. >> trust me. let's have our panelists weigh
in. scott? what do you say? >> can we throw in the towel on dan? i'm with mike. i think the stock has found short-term volume. it has come a long way. the valuation is pretty compelling. carter, what do you see in the charts? >> i will let the viewers decide who won that. it's a classy example of so bad it is good. >> so mike wins. dan. sorry. >> i have never, ever won one of these. >> you barreled through two bells and lost. mike, why don't you give us the trade. >> looking for it to bottom out. i want to sell this and collect $19 on the 450s and cover the down side by buying the 14s for $14.50. i am going to collect for a spread that could be 10. if it sits here, we are going collect money. if it rallies, we will have a chance to cover for a profit. i am risking $550. >> dan, i'm wondering what you think. granted, you are arguing the other side of it. mike is not arguing the stocks are going to go to 600. he is arguing there could be some sort of a bounce. >> i think the trade is okay. implied volatility comes down in the name i don't think you are
being adequately compensated to take that risk. i would love to sell put spread on this stock when you see it move to 400. i think we are going to see a 400 in print. >> one final thing i would have said. i would have loved to have been selling puts in this thing. for a while, they were really rich. they aren't. that's why i'm not doing that. >> so i win, basically. >> it doesn't work that way. you got the buzzer. what do you think of the trade? >> i like this a lot. it is essentially a coin flip. your selling that at the money put. you are going to collect as much time premium as you can. given the fact it is a coin flip, it makes a lot of sense. >> good debate, dan. dan is the loser, sorry, dan. if you want updates on our trades, be sure to follow us. dan has regular updates on his trades on twitter at risk reversal. if you are on facebook, stay posted on our trades throughout the week at
facebook.com/optionsactions. final call from the options pit right after this. [ indistinct shouting ] ♪ [ indistinct shouting ] [ male announcer ] time and sales data. split-second stats. [ indistinct shouting ] ♪ it's so close to the options floor... [ indistinct shouting, bell dinging ] ...you'll bust your brain box. ♪ all on thinkorswim from td ameritrade. ♪
time for the final call. scott? >> the key is not always being right but always being disciplined, buying puts and put spreads. >> dan? >> i like using this bounce and maybe early next week to lay out some shorts. i like shorts. >> mike? >> dan, you are a winner on the xhb train. i am going to go with that. i think the home builders have a long way to fall. >> the implication is a loser in the apple debate. our time is expired. to are more options action, check out our website. see you back here next friday. money in motion is up right after this break. [ indistinct shouting ] ♪ [ indistinct shouting ]